The Future of Government Procurement is Virtual
Government procurement can be an unwieldy, distinctly nonlinear process. Procurement executive Chand Sooran has a proposal for how to iron out the kinks.
Government procurement is a mess. It is an endless thicket of red tape for vendors and an inflexible, rules-ridden process for buyers. As federal Procurement Ombudsman Lorenzo Ieraci said in his 2016-17 report, “One of the concerns I routinely hear from Canadian suppliers, in particular small and medium-sized companies, is that federal procurement is complex. Many point to federal solicitations that number dozens—sometimes hundreds—of pages as examples.”
On the other hand, there is the government’s perspective. Ieraci notes that documents are very detailed because “federal organizations must fully and accurately disclose the details of the procurement process and the resulting contract. Federal officials have told me informally they don’t want to make solicitation and contract documents overly detailed, but that they have no choice in order to respect this principle and protect their organization from procurement-related challenges.”
Put those two realities together and what you have is an unwieldy, inflexible, inscrutable, expensive, lengthy process that services neither the buyer nor the seller well. It alienates, frustrates, and angers potential vendors who quickly realize the process is not worth the time, effort, and expense for a bid they might not win. For government, it ties up program managers and scarce procurement officers from carrying out their day-to-day jobs and overseeing contracts once they are in place. Moreover, things are likely to get worse with the looming retirement of already overworked and skilled procurement officers.
What does this mean in economic and fiscal terms, as well as lost opportunities for Canadian business and government?
Many, if not most, of the alienated vendors are small- and medium-sized enterprises (SMEs). Some of these SMEs are owned and led by women, Indigenous people or members of other disadvantaged cohorts—the very groups identified by the current federal government as ones who need to become more fully engaged in the Canadian economy. These are vendors who might have brought better solutions for the problems faced by the purchasing agency; suppliers who might be competitive on price and other aspects of the contract; and businesses led by people who want nothing more than a level playing field.
These same SMEs face their own unique set of challenges with public procurement. They include overcoming “category management” that groups purchases together in larger lots or wider geographies; perceptions of inconsistent treatment of sub-contractors; and distrust in the overall fairness of the process when bids seem to be “wired” for specific vendors, often the incumbent supplier or larger vendors. Indeed, this lack of trust due to the perception that the process is tilted to favor existing or larger vendors is a critical dimension of the procurement challenge. It is no wonder that, according to a study by the University of Ottawa, the “majority of Canadian SMEs (81.5 per cent) do not view the federal government as a potential client.” According to the Business Development Bank of Canada, 99.8 per cent of businesses in Canada are SMEs (defined as firms with fewer than 500 employees). Yet these same SMEs win only 35 per cent of the contract value awarded by Public Services and Procurement Canada (PSPC). To put it another way, 0.2 per cent of businesses in Canada received 65 per cent of federal government procurement.
None of this is to deny the reasons why the system is the way it is. There are valid concerns about vendors, including capacity, reputation, and minimization of hazard. In the political and risk-averse environment of government procurement, that is totally understandable. The current system is a kind of fail-safe, belt-and-suspenders way to protect buyers from making mistakes that lead to waste, fraud, and abuse. But all too often this overcompensation for legitimate concerns results in unintended consequences—not having enough vendors bid on business, not seeing the full range of potential solutions, not getting enough competition on price, and not getting things done on a timely basis.
Many, if not most, of the alienated vendors are small- and medium-sized enterprises (SMEs). Some of these SMEs are owned and led by women, Indigenous people or members of other disadvantaged cohorts—the very groups identified by the current federal government as ones who need to become more fully engaged in the Canadian economy.
According to the Business Development Bank of Canada, 99.8 per cent of businesses in Canada are SMEs (defined as firms with fewer than 500 employees). Yet these same SMEs win only 35 per cent of the contract value awarded by Public Services and Procurement Canada (PSPC).
It leads inevitably to some uncomfortable questions. How much SME innovation has government missed because of its approach? How much money could have been saved by working with more flexible SMEs?
The truth is it doesn’t have to be this way. Procurement doesn’t have to be complicated, messy, and exclusionary. There is a better way to match large buyers with sellers of goods and services. An easy model permitting buyers and sellers to engage under a framework of stringent and complex regulations already exists, and it’s staring us in the face: stock markets. No doubt you
are wondering, how can the often frenetic, unpredictable, and chaotic instantaneous trading of stocks possibly apply to the current web of rules surrounding the ponderous process government procurement?
Every day, hundreds of billions of dollars of equities change hands in a global marketplace where information abounds, overseen by regulators enforcing an intricate web of rules and laws. The most inexperienced retail investor can execute a trade easily and inexpensively without training, confident in the protection of the law. Anyone with a web browser can tell you at what price a listed security trades. Many stocks trade in the millions of shares daily. And the costs of executing a trade is a fraction of what it was 25 years ago, with technology continuing to push expenses lower. It is not only possible, but realistic to imagine a world in which public procurement works similarly to equity markets. This would not only make the process more usable for buyers and suppliers alike, but also bring more SMEs into the process. To reach this better world requires the Government of Canada to use a new platform that supports its existing procurement tools. For starters, this platform would require a drastically simplified 21st-century user experience, opening accessibility to the process beyond the shrinking cadre of expert procurement officers. It means harnessing the information and digital technology of 2018 to create a procurement process that is inclusive, transparent and rigorous. In addition to the Government of Canada, the new platform would host buyers from other levels of government, governments in other countries, corporations, universities, and other large organizations.
In practical terms that means:
• Simplicity and Consolidation: With an easy user experience to increase access for a broader set of vendors and to encourage deeper engagement, the platform would span multiple agencies and jurisdictions, acting as a clearinghouse for common supplier management activities, such as registration, converting a one-to-one framework to a oneto-many framework;
• Efficiency: Vendors would receive all request-for-proposal information in real-time, filtered intelligently for relevance, meaning there would be no more hunting across tens of websites weekly, searching for opportunities;
• Transparency: A unified database would help everyone see RFP activity from all participants, including pricing in the form of posted purchase orders so that buyers could use information from recent and related RFPs to generate their own documents, faster and without the risk of being swayed by an individual vendor; and • Social Networking: The new marketplace would come with messaging capabilities that create a social network of buyers who can collaborate on developing RFPs; share information about what works and what does not; and, potentially, purchase jointly, with vendors banding together on the social network to sell collaboratively so that they can compete for larger contracts or across larger geographic areas. Think of it as “peer-to-peer procurement” for the first time. Buyers could access crowdsourced ratings of vendors, so that all suppliers feel that reputation was a real factor in a fair purchasing decision.
The platform would be a secure, Canada-based, cloud-delivered service, independent from any individual organization’s information technology infrastructure. For buyers and sellers, the costs are low and principally variable (tied to individual transactions), as opposed to high and fixed. The operating costs for the platform would be spread across all users, as would the political risk of failure. The beauty of this new marketplace is it would address all the belts-andsuspenders concerns, while reducing the unintended consequences of the current system. Ad it would work alongside current systems with minimal disruption. It would be easy to buy and easy to implement.
It is not only possible, but realistic to imagine a world in which public procurement works similarly to equity markets. This would not only make the process more usable for buyers and suppliers alike, but also bring more SMEs into the process.
Do these things and more vendors will come to the table, bringing a greater diversity of solutions, and more competition on price. It will be key to engaging the companies that generate the bulk of Canada’s future growth, helping them develop capacity that they can use to sell into export markets.
All it takes is the will to act.
Chand Sooran is the founder and CEO of EdgeworthBox, which seeks to make it easier for SMEs to do business with large corporations and government. His experience spans public service, market-making in foreign exchange options, investing globally as a hedge fund special situations analyst, and leading positions in technology startups. He is a graduate of RMC, Queen’s, and the Massachusetts Institute of Technology.
Getting procurement wrong is something governments do systemically. How to do it right? iStock photo